Top Deals 2012: Office transactions trump retail

Niche infrastructure-type assets become more attractive

Large cross-border real estate investors focused on best-in-class office properties in stable locations in 2012 to lock in revenue streams.

The retail sector turned in a more subdued performance as worries about consumer spending power braked financing
for all but the most dominant assets in the strongest markets. Another drag on activity was the knock-on effect of the development slowdown in recent years which has restricted the availability of prime retail assets. PropertyEU data on reported commercial real estate transactions of €20 mlnplus in Europe shows offices accounted for almost €30 bn, or 37%, of the overall provisional volume of €80.6 bn in 2012. Office volumes were buoyed by sovereign wealth funds deploying their massive firepower in the Big Three European markets - the UK, Germany and France - and in the capital cities of those countries in particular. For instance, Malaysia’s Permodalan Nasional Berhad pension fund acquired two office properties in London from German fund manager Kanam for about €660 mln. Invesco Real Estate, acting on behalf of the Qatari sovereign wealth fund, acquired the Cité du Retiro and Néo office complexes in Paris for €500 mln. The largest single office transaction saw Norway’s oil-fuelled pension fund branching out beyond the Big Three markets to buy Credit Suisse’s Uetlihof complex in Zurich for €830 mln. While investor demand for dominant shopping centres and other large retail assets remained strong in 2012, this is not fully reflected in our data. We recorded just €14.5 bn. of large retail deals, 18% of the total volume. The figure would have been higher had the buyers and vendors in many cases been transparent on the financial details. Still, it is clear the €1 bn acquisition by Austrian company Signa Holdings of 18 Karstadt assets - including Berlin’s iconic KaDeWe department store - was the exception rather than the rule. Another trend in 2012 which is likely to feed into this year was the rising interest in niche sectors with infrastructure-type characteristics such as data storage. Residential was in many ways the investors’ darling in Germany as portfolio volumes topped €10 bn - the highest level since 2007. Fund managers are keen to get in on the action, according to Colliers’ newly appointed head of capital markets for Germany Ignaz Trombello. ‘I believe we will see a number of new residential funds being launched this year. Union Investment, RREEF and AXA Real Estate have been active in this segment for a while and I have no doubt other fund managers such as Deka for instance will follow suit.’

Both Colliers and LaSalle have highlighted the trend in certain markets to convert office space for use as apartments, student housing or for healthcare. In its strategy report, LaSalle also points to the emergence of the data centre segment - signalled by US player Digital Reality which acquired three UK data centres for €900 mln last year.

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